MACQUARIE REFLEXION BRIC AND EMERGING MARKETS TRUST ARSN ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2010

Transcription

1 MACQUARIE REFLEXION BRIC AND EMERGING MARKETS TRUST ARSN ANNUAL REPORT FOR THE FINANCIAL YEAR ENDED 30 JUNE 2010 omacquarie

2 Annual Report for the year ended 30 June 2010 Contents Directors' Report 2 Auditor's Independence Declaration 5 Statement of Comprehensive Income 6 Statement of Financial Position 7 Statement of Changes in Equity 8 Statement of Cash Flows 9 10 Directors' Declaration 39 Independent Auditor's Report to the Unitholders of Macquarie Reflexion BRIC and Emerging Markets Trust 40 This annual financial report covers Macquarie Reflexion BRie and Emerging Markets Trust as an individual entity, Responsible Entity: Macquarie Financial Products Management Limited ABN No.1, Martin Place, Sydney, New South Wales, 2000 AUSTRALIA Neither the Responsible Entity, nor any member of the Macquane Group Limited, guarantees the performance of the Macquarie Reflexion BRIC and Emerging Markets Trust, the repayments of capital or the payment of a particular rate of return on the units issued. Macquane Financial Products Management Limited is not an authorised deposit-taking institution for the purposes of the Banking Act (Cth) 1959, and Macquarie Financial Products Management Limited's obligations do not represent deposits or other liabilities of Macquarie Bank Limited ABN Macquane Bank Limited does not guarantee or otherwise provide assurance in respect of the obligations of Macquarie Financiai Products Management Limited. 1

3 Directors' Report 30 June 2010 The Directors of Macquarie Financial Products Management Limited (a wholly owned subsidiary of Macquarie Group Limited), the Responsible Entity of the Macquarie Reflexion BRie and Emerging Markets Trust, present their report together with the financial report of Macquarie Reflexion BRIC and Emerging Markets Trust ("the Trust"), for the year ended 30 June Principal activities The principal activity of the Trust is to obtain investment exposures to the Macquarie - Globalis BRIC Advantage Fund under the original offers and the MSCI Emerging Markets Index under the variation offers. The Trust gains exposures to the Macquarie - Globalis BRIC Advantage Fund and the MSCI Emerging Markets Index (the "Underlying Investments") via Investment Linked Swaps in accordance with the Trust's Constitution. The Trust did not have any employees during the year. There were no significant changes in the nature of the Trust's activities during the year. Directors Variation offers ("the Variation") are effective from 1 July 2009 as per the terms of offers made to investors to have an optional Variation applied to their investments to alter the Underlying Investment from the Macquarie - Globalis BRIC Advantage Fund to the MSCI Emerging Markets Index with a re-established initial Investment level. In case of the variation offers, the use of Threshold Management technique has been removed and there will be no further periodic distributions. Refer to Note 7 in the notes to the financial statements for movements in relation to the variation offers. The following persons have held office as Directors of Macquarie Financial Products Management Limited ("the Responsible Entity") during the whole of the year until the date of this report: Jason King Peter Bruce Lucas Simone Alison Mosse William Dudley Fox Review and results of operations During the year, the Trust's investments were in accordance with the stated strategy in its Product Disclosure Statements and the provisions of the Trust Constitution. The performance of the Trust, as represented by the results of its operations, was as follows: Year ended 30 June June 2009 Operating profit before finance costs attributable to unitholders 8,233,577 9,276,262 Redemption distribution paid/(recovered) 1 87,501 (1,127,333) 2

4 Directors' Report 30 June 2010 (continued) Significant changes in state of affairs In the opinion of the Directors, there were no significant changes in the state of affairs of the Trust that occurred during the financial year under review. Matters subsequent to the end of the financial year No matter or circumstance has arisen since 30 June 2010 that has significantly affected, or may significantly affect: (i) the operations of the Trust in future financial years; or (ii) the results of those operations in future financial years; or (iii) the state of affairs of the Trust in future financial years. Likely developments and expected results of operations The Trust will continue to be managed in accordance with the investment objectives and guidelines as set out in the governing documents of the Trust and in accordance with the provisions of the Trust Constitution. The results of the Trust's operations will be affected by a number of factors, including the performance of the Underlying Investments in which the Trust invests. Investment performance is not guaranteed and future returns may differ from past returns. As investment conditions change over time, past returns should not be used to predict future returns. Further information on likely developments in the operation of the Trust and the expected results of those operations have not been included in this report because the Responsible Entity believes it would be likely to result in unreasonable prejudice to the Trust. Indemnification and insurance of officers and auditors No insurance premiums are paid for out of the assets of the Trust in regards to insurance cover provided to either the officers of the Responsible Entity or the auditors of the Trust. So long as the officers of the Responsible Entity act in accordance with the Trust Constitution and the eorporations Act 2001 (the "Act' the officers remain indemnified out of the assets of the Trust against losses incurred while acting on behalf of the Trust. The auditors of the Trust are in no way indemnified out of the assets of the Trust. Fees paid to and units held in the Trust by the Responsible Entity and its associates Annual administration fees paid to the Responsible Entity out of Trust property during the year is disclosed in Note 12 to the Financial Statements. No fees were paid out of Trust property to the Directors of the Responsible Entity during the year. The number of units in the Trust held by Responsible Entity and its associates as at the end of the year are disclosed in Note 12 to the Financial Statements. 3

5 Directors' Report 30 June 2010 (continued) Units in the Trust The movement in units on issue in the Trust during the financial year is disclosed in Note 7 to the Financial Statements. 19,703,664 units in the Trust were redeemed during the financial year (2009: 41,699,989). No units in the Trust were issued during the financial year (2009: 5,645,000). The units on issue at 30 June 2010 is as disclosed in Note 7 to the financial statements. Trust Assets The value of the Trust's assets and liabilities is disclosed in the statement of financial position and derived using the basis set out in Note 2 to the Financial Statements. Environmental regulation The operations of the Trust are not subject to any particular or significant environmental regulations under a Commonwealth, State or Territory Law. Auditor's Independence Declaration A copy of the Auditor's Independence Declaration as required under section 307C of the Corporations Act 2001 is set out on page 5. Rounding of amounts Amounts in the financial report have been rounded off to the nearest dollar unless otherwise indicated Director Sydney 28 September

6 ',''"" ãl ERNST & YOUNG Ernst & Young Centre 680 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: Fax: Auditor's Independence Declaration to the Directors of Macquarie Financial Products Management Limited, as Responsible Entity for Macquarie Reflexion Brie and Emerging Markets Trust In relation to our audit of the financial report of Macquarie Reflexion Bric and Emerging Markets Trust for the financial year ended 30 June 2010, to the best of my knowledge and belief, there have been no contraventions of the auditor independence requirements of the Corporations Act 2001 or any applicable code of professional conduct. Gi1~ Ernst & Young D/7~ \ / i- ( Darren Handley-Greaves Partner 28 September 2010 Liabiiity limited by a scheme approved under Professional Standards Legislation

7 Statement of Comprehensive Income for the year ended 30 June 2010 Year ended Notes 30 June June 2009 Investment income Interest income 1,213,290 2,990,036 Net gains on financial instruments held at fair value through profit or loss 5 8,234,725 9,277,262 Total investment income 9,448,015 12,267,298 Expenses Investment Linked Swap fees 1,184,647 2,990,036 Responsible entity fees 12 29,791 1,000 Total operating expenses 1,214,438 2,991,036 Operating profit 8,233,577 9,276,262 Finance costs attributable to unitholders Distributions (paid)/recovered from unitholders Increase in net assets attributable to unitholders 6 7 (187,501) (8,046,076) 1,127,333 (10,403,595) Total finance costs attributable to unitholders (8,233,577) (9,276,262) Profit/(Ioss) for the year Other comprehensive income/(ioss) Foreign exchange translation reserve for the year Reserve movements attributable to unitholders 2,021,935 (2,021,935) 2,757,456 (2,757,456) Total comprehensive income/(ioss) for the year The above statement of comprehensive income should be read in conjunction with the accompanying notes. 6

8 Statement of Financial Position as at 30 June 2010 Notes 30 June June 2009 Assets Cash & cash equivalents GST receivable Collateral deposit Financial assets held at fair value through profit & loss Total assets , ,409,463 6,967, ,379,186 5,643, ,455, , ,069,806 Liabilities Responsible entity fees payable 12 Investment Linked Swap fees payable Financial liabilities held at fair value through profit & loss 10 Total liabilities (excluding net assets attributable to unitholders) Net assets attributable to unitholders - liability 7 8,831 3,300 2,349 9,043,854 20,106,701 9,055,034 20,110, ,324, ,959,805 Equity Reserves Reserves attributable to unitholders 5,953,090 (5,953,090) 3,931,155 (3,931,155) The above statement of financial position should be read in conjunction with the accompanying notes. 7

9 Statement of Changes in Equity for the year ended 30 June 2010 Year ended 30 June June 2009 Total equity at the beginning of the financial year Profit/(Ioss) for the year Other comprehensive income/(ioss) for the year Total comprehensive income and loss for the year Transactions with owners in their capacity as owners Total equity at the end of the financial year Under Australian Accounting Standards, net assets attributable to unitholders are classified as a liability rather than equity. As a result there was no equity at the start or end of the year. The above statement of changes in equity should be read in conjunction with the accompanying notes. 8

10 Statement of Cash Flows for the year ended 30 June 2010 Notes Year ended 30 June June 2009 Cash flows from operating activities Investment Linked Swap collateral deposited Investment Linked Swap collateral withdrawn Collateral deposit interest received Investment Linked Swap fee paid Management fees paid Realised gains/(iosses) on redemptions Net cash inflow from operating activities (5,643,104) (36,216,000) 19,703,664 41,699,989 1,208,657 2,990,036 (1,182,298) (2,990,036) (26,359) 187,501 (1,127,333) 13(a) 14,248,061 4,356,656 Cash flows from financing activites Proceeds from applications by unitholders Payments for redemptions by unitholders Distribution (paid)/recovered from unitholders Net cash outfow from financing activities 5,645,000 (19,703,664) (41,699,989) (187,501 ) 1,127,333 (19,891,165) (34,927,656) Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year (5,643,104) (30,571,000) 5,643,104 36,360,647 Foreign exchange differences (146,543) Cash and cash equivalents at the end of the year 8 5,643,104 The above statement of cash flows should be read in conjunction with the accompanying notes. 9

11 for the year ended 30 June General information This financial report covers Macquarie Reflexion BRIC and Emerging Markets Trust ("the Trust") as an individual entity. The Trust was constituted on 21 August 2006 and registered on 29 August The Trust is expected to terminate on 28 August 2086 unless terminated earlier in accordance with the provisions of the Trust Constitution. Macquarie Reflexion BRIC and Emerging Markets Trust is a managed investment scheme. The Responsible Entity of the Trust is Macquarie Financial Products Management Limited ("the Responsible Entity") having its registered office at No, 1, Martin Place, Sydney, New South Wales 2000, Australia. The financial report is presented in the Australian currency. The financial statements were authorised for issue by the Directors on 28 September The Directors of the Responsible Entity have the power to amend and reissue the financial report. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated in the following text. (a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001 in Australia. The financial report is prepared on the basis of fair value measurement of assets and liabilities except where otherwise stated. The statement of financial position is presented on a liquidity basis. Assets and liabilities are presented in decreasing order of liquidity and are not distinguished between current and non-current. All balances are expected to be recovered or settled within twelve months, except for investments in financial assets and net assets attributable to unitholders. The amount expected to be recovered or settled in relation to these balances cannot be reliably determined. Amounts in the financial report have been rounded off to the nearest dollar unless otherwise indicated. Compliance with International Financial Reporting Standards The financial report of the Trust also complies with International Financial Reporting Standards as issued by the International Accounting Standards Board. Financial Statement Presentation The Trust has applied the revised AASB 101 Presentation of Financial Statements which became effective on 1 January The revised standard requires the separate presentation of a statement of comprehensive income and a statement of changes in equity. All non-owner changes in equity must now be presented in the statement of comprehensive income. As a consequence, the Trust had to change the presentation of its financial statements. Comparative information has been re-presented so that it is also in conformity with the revised standard. 10

12 2. Summary of significant accounting policies (continued) (b) Financial instruments (i) Classification The Trust's investments are classified as at fair value through profit or loss. They include derivatives such as the Investment Linked Swaps and Forward Foreign Currency Exchange agreements, which are considered to be held for trading in accordance with Accounting Standard AASB 139. (ii) Recognition/derecognition The Trust recognises financial assets and financial liabilities on the date it becomes party to the contractual liabilities from this agreement (trade date) and recognises changes in fair value of the financial assets or financial date. Investments are derecognised when the right to receive cashflows from the investments have expired or the Trust has transferred substantially all risks and rewards of ownership. (iii) Measurement (a) Financial assets and liabilities held at fair value through profit or loss Financial assets and liabilities held at fair value through profit and loss are measured initially at fair value excluding any transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately. Subsequent to initial recognition, all instruments held at fair value through profit or loss are measured at fair value with changes in their fair value recognised in the statement of comprehensive income. (b) Investment Linked Swap The net fair value of the Investment Linked Swap is based on the valuations provided by the Swap Counterparty which is principally driven by the value of call option and/or movement in the Underlying Investments including the break costs and/or break gains payable/receivable if the Investment Linked Swap were redeemed before maturity. These break costs and/or break gains are passed onto the redeeming investors through the valuation of their units. (c) Foreign Currency Exchange Agreement Foreign Currency Exchange Agreements are primarily used by the Trust to manage against foreign currency exchange rate risks on its non-australian Dollar denominated financial instruments. The Trust agrees to receive or deliver a fixed quantity of foreign currency for an agreed-upon price on an agreed future date. Foreign Currency Exchange Agreements are valued at the prevailing market rate at the reporting date. The Trust recognises a gain or loss equal to the change in fair value at the reporting date. (iv) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. 11

13 2. Summary of significant accounting policies (continued) (c) Net assets attributable to unitholders Units are redeemable at the unitholders' option and are classified as financial liabilities. Subject to sufficient liquidity within the Trust, the units can be put back to the Trust equal to a proportionate share of the Trust's net asset value. The fair value of redeemable units is measured at the redemption amount that is payable (based on the redemption unit price) at the reporting date if unitholders exercised their right to put the units back to the Trust. (d) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with banks and investments in money market instruments which are readily convertible to cash on hand and are subject to an insignificant risk of changes in value. Payments and receipts relating to the purchase and sale of financial assets are classified as cash flows from operating activities, as movements in the fair value of these securities represent the Trust's main income generating activity. (e) Collateral deposit The collateral deposit is held with wholly-owned subsidiaries of MGL and represents the credit support for the Investment Linked Swaps entered into between the Trust and wholly owned subsidiaries of MGL. (f) Investment income and expenses Investment income and expenses are brought to account on an accrual basis. Changes in the fair value of financial assets and liabilities are recorded in accordance with the policies described in Note 2(b). (g) Expenses All expenses are recognised in the statement of comprehensive income on an accrual basis. (h) Income tax Under current income tax legislation, the Trust is not subject to income tax provided its distributable income is fully distributed to investors. Financial instruments held at fair value may include unrealised capital gains. Should such a gain be realised, that portion of the gain that is subject to capital gains tax will be distributed so that the Trust is not subject to capital gains tax. Distributable income is determined by reference to the taxable income of the Trust. (i) Distributions In accordance with the Trust Constitution, the Trust fully distributes its distributable (taxable) income to unitholders by way of cash. The distributions are recognised in the statement of comprehensive income as finance costs attributable to unitholders. 12

14 2. Summary of significant accounting policies (continued) Ul Increase/decrease in net assets attributable to unitholders Income not distributed is included in net assets attributable to unitholders. Movements in net assets attributable to unitholders are recognised in the statement of comprehensive income as finance costs. (k) Foreign currency translation Functional and presentation currency Items included in the Trust's financial statements are measured using the currency of the primary economic environment in which it operates (the "functional currency"). This is the United States Dollar. The Australian Dollar is the Trust's presentation currency. The exchange differences arising from the translation of the assets, liabilities, income and expenses from the functional currency to the presentation currency are taken to statement of comprehensive income as other comprehensive income/(ioss) for the year. Transactions and balances Foreign currency transactions, where applicable, are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translations at year-end exchange rates, of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. The Trust does not isolate that portion of gains or losses on financial instruments and derivative financial instruments that are measured at fair value through profit or loss and which is due to changes in foreign exchange rates from that which is due to changes in the market price of securities. Such fluctuations are included with the net gains or losses on financial instruments at fair value through profit or loss. (I) Receivables Receivables may include amounts for interest on Collateral deposit and Goods and Services Tax receivable from the Australian Taxation Office (ATO). (m) Payables Payables include liabilities and accrued expenses owing by the Trust which are unpaid as at the reporting date. (n) Goods and Services Tax (GSl) The GST incurred on the Responsible Entity fees has been passed onto the Trust. The Trust qualifies for Reduced input tax credits (RITe) at a rate of 75% hence Responsible Entity fees has been recognised in the statement of comprehensive income net of the amount of GST recoverable from the Australian Taxation Office (ATO). Responsible Entity fees payable is inclusive of GST. The net amount of GST receivable from the ATO is included in receivables in the statement of financial position. Cash flows relating to GST are included in the statement of cash flows on a gross basis. (0) Use of estimates The Trust makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates are continually evaluated and based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 13

15 2. Summary of significant accounting policies (continued) (0) Use of estimates (continued) The majority of the Trust's financial instruments are over-the-counter derivatives or unquoted securities, which are fair valued using valuation techniques. Where valuation techniques (for example, pricing models) are used to determine fair values, they are validated and periodically reviewed by experienced personnel of the Responsible Entity, independent of the area that created them. Models use observable data, to the extent practicable. However, areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect the reported fair value of financial instruments. (p) New accounting standards and interpretations Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2010 reporting periods. The Directors' assessment of the impact of these new standards (to the extent relevant to the Trust) and interpretations is set out below: (i) AASB 9 Financial Instruments and AASB Amendments to Australian Accounting Standards arising from MSB 9 (effective from 1 January 2013) AASB 9 Financial Instruments addresses the classification and measurement of financial assets. The standard is not applicable until 1 January 2013 but is available for early adoption. AASB 9 only permits the recognition of fair value gains and losses in other comprehensive income if they relate to equity investments that are not traded. Fair value gains and losses on available-for-sale debt investments, for example, will therefore have to be recognised directly in profit or loss. The Trust has not adopted these standards early. However, management does not expect any impact on the Trust's financial statements as the Trust does not hold any available-for-sale investments. (ii) AASB Further Amendments to Australian Accounting Standards ansmg from the Annual Improvements Project(MSB 5,8, 101, 107, 117, 118, 136 and 139j(effective from 1 July 2010) In May 2009, the Australian Accounting Standards Board issued a number of improvements to AASB 5 Noncurrent Assets Held for Sale and Discontinued Operations, AASB 8 Operating Segments, AASB 101 Presentation of financial statements, AASB 107 Statement of Cash Flows, AASB 117 Leases, AASB 118 Revenue, AASB 136 Impairment of Assets and AASB 139 Financial Instruments: Recognition and Measurement. The Trust will apply the revised Standards from 1 July The Trust does not expect any adjustments as a result of applying the revised rules. (iii) Revised AASB 124 Related Party Disclosures and AASB Amendments to Australian Accounting Standards (effective from 1 January 2011) In December 2009, the Australian Accounting Standards Board issued a revised AASB 124 Related Party Disclosures. It is effective for accounting periods beginning on or after 1 January 2011 and must be applied retrospectively. The amendment removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities and clarifies and simplifies the definition of a related party. The Trust will apply the amended standard from 1 July When the amendments are applied, the Trust would need to disclose any transactions between its subsidiaries and its associates. However, as the Trust does not have any subsidiaries and associates, the amendment will not have any effect on the Trust's financial statements. 14

16 2. Summary of significant accounting policies (continued) (q) Applications and redemptions Applications received for units in the Trust are recorded net of any entry fees payable prior to the issue of units in the Trust. Redemptions from the Trust are recorded gross of any exit fees payable after the cancellation of units redeemed. 3. Financial risk management The following note disclosure provides an analysis of the financial risks that are managed by the Trust. Terms presented below and followed by an '*' are defined within the Product Disclosure Statements. Investment policy Investment policy (For 2006 & 2007 offers) Original offers Under the original offers ("he Original"), Macquarie Reflexion BRIC and Emerging Markets Trust provides investors with a United States Dollar ("USD") denominated exposure to the Macquarie - Globalis BRIC Advantage Fund, which is capital protected in Australian dollars ("AUD") at maturity. This Fund seeks to provide exposure to emerging market economies with a particular focus on Brazil, Russia, India and China ("BRIG") and aims to outperform the MSCI Emerging Markets Index in USD over the long term. Variation offers (effective 1 July 2009) Variation offers ("the Variation") are effective from 1 July 2009 as per the terms of offers made to investors to have an optional Variation applied to their investments to alter the Underlying Investment from the Macquarie - Globalis BRIC Advantage Fund to the MSCI Emerging Markets Index with a re-established initial Investment level. In case of the variation offers, the use of Threshold Management technique has been removed and there will be no further periodic distributions. Under the Variation offers ("the Variation"), Macquarie Reflexion BRIC and Emerging Markets Trust provides investors with a United States Dollar ("USD") denominated exposure to the MSCI Emerging Markets Index, which is capital protected in Australian dollars ("AUD") at maturity. This Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. The exposure to the Macquarie - Globalis BRIC Advantage Fund and the MSCI Emerging Markets Index represents "the Underlying Investments" for the Trust. The Trust does not invest directly in the Underlying Investments but instead obtains an exposure to the Underlying Investments via Investment Linked Swap Agreements with wholly-owned subsidiaries of Macquarie Group Limited (the "Swap Counterparty"). The Trust has entered into the following agreements: an Investment Linked Swap Agreement a Foreign Currency Exchange Agreement The Investment Linked Swap Agreement is the contractual arrangement by which the Trust obtains exposure to the Underlying Investments. Each Investment Linked Swap Agreement comprises of two components:. An Investment Linked Swap - provides the Trust with exposure to the Underlying Investments; and. The Cash Collateral - this, in conjunction with the Foreign Currency Exchange Agreement, forms the basis of capital protection at maturity. 15

17 3. Financial risk management (continued) Investment policy (For 2006 & 2007 offers) (continued) Investment Linked Swap The Investment Linked Swap is a contract under which the Trust:. may receive a payment from the Swap Counterparty at maturity, the amount of which will depend upon the performance of the Underlying Investments during the term;. is required to pay to the Swap Counterparty an amount each month, equal to the amount of interest it receives from the Cash Collateral; and. provides investors in the Trust with the potential to receive an annual distribution depending, among other things, on the performance of the Underlying Investment (applicable for original offers). Cash Collateral The Trust deposits the offer proceeds with the Swap Counterparty in United States Dollar as collateral for its obligation under the Investment Linked Swap Agreements. The interest earned on the Cash Collateral is applied to make payments to the Swap Counterparty under the Investment Linked Swaps. The Cash Collateral will be returned to the Trust at the maturity date, or partially if unitholders make redemptions. Foreign Currency Exchange Agreement The Trust has entered into Foreign Currency Exchange Agreements with wholly-owned subsidiaries of Macquarie Group Limited (the "FX Counterparty"). Under these agreements, the Trust will commit to sell the value of the United States Dollar-denominated Cash Collateral for a fixed Australian Dollar amount on the maturity date. This fixed Australian Dollar amount should be equal to the sum of the Investment Loan Repayment* obligations for all the investors in the Trust. Investment policy (For June 2008 offers) Original offers Under the Original offers ("the Original"), Macquarie Reflexion BRIC and Emerging Markets Trust provides investors with a United States Dollar ("USD") denominated exposure to the Macquarie - Globalis BRIC Advantage Fund, which is capital protected in Australian dollars ("AUD") at maturity. This Fund seeks to provide exposure to emerging market economies with a particular focus on Brazil, Russia, India and China ("BRIC") and aims to outperform the MSCI Emerging Markets Index in USD over the long term. Variation offers (effective 1 July 2009) Variation offers ("the Variation") are effective from 1 July 2009 as per the terms of offers made to investors to have an optional Variation applied to their investments to alter the Underlying Investment from the Macquarie - Globalis BRIC Advantage Fund to the MSCI Emerging Markets Index with a re-established initial Investment level. In case of the variation offers, the use of Threshold Management technique has been removed and there will be no further periodic distributions. Under the Variation offers ("the Variation"), Macquarie Reflexion BRIC and Emerging Markets Trust provides investors with a United States Dollar ("USD") denominated exposure to the MSCI Emerging Markets Index, which is capital protected in Australian dollars ("AUD") at maturity. This Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. 16

18 3. Financial risk management (continued) Investment policy (For June 2008 offers) (continued) The exposure to the Macquarie - Globalis BRIC Advantage Fund and the MSCI Emerging Markets Index represents "the Underlying Investments" for the Trust. The Trust does not invest directly in the Underlying Investments but instead obtains an exposure to the Underlying Investments via Investment Linked Swap Arrangements. The Trust has entered into the following agreements: an Investment Linked Swap Agreement ("Swap Agreement") a Cash Collateral Agreement ("Collateral Agreement"); and a Foreign Currency Exchange Agreement The Swap Agreement and the Collateral Agreement together forms the "Investment Linked Swap Arrangement". The Investment Linked Swap Arrangement is the contractual arrangement by which the Trust obtains exposure to the Underlying Investments. The Investment Linked Swap Arrangement comprises of two components:. Swap Agreement - provides the Trust with exposure to the Underlying Investments. This agreement is made between the Trust and Macquarie Capital Advisors Limited (the "Swap Counterparty"); and. Collateral Agreement - this, in conjunction with the Foreign Currency Exchange Agreement, forms the basis of capital protection at maturity. This agreement is made between the Trust and Macquarie Capital Advisers Limited (the "Collateral Counterparty"). Swap Agreement The Swap Agreement is a contract under which the Trust:. may receive a payment from the Swap Counterparty at maturity, the amount of which will depend upon the performance of the Underlying Investments during the term;. is required to pay to the Swap Counterparty an amount each month, equal to the amount of interest it receives from the Cash Collateral;. provides investors in the Trust with the potential to receive an annual distribution depending, among other things, on the performance of the Underlying Investment (applicable for original offer); and. may be required to pay an amount to the Swap Counterparty or receive an amount from the Swap Counterparty (depending on market conditions) if all or part of the Swap Agreement is terminated or unwound early. Collateral Agreement The Trust deposits the offer proceeds with the Collateral Counterparty in United States Dollar as collateral for its obligation under the Swap Agreements. The interest earned on the Cash Collateral is applied to make payments to the Swap Counterparty under the Swap Agreements. The Cash Collateral will be returned to the Trust at the maturity date, or partially if unitholders make redemptions. 17

19 3. Financial risk management (continued) Investment policy (For June 2008 offers) (continued) Foreign Currency Exchange Agreement The Trust has entered into Foreign Currency Exchange Agreements with Macquarie Bank Limited (the "FX Counterparty"). Under these agreements, the Trust will commit to sell the value of the USD-denominated Cash Collateral for a fixed Australian Dollar amount on the maturity date. This fixed Australian Dollar amount should be equal to the sum of the Investment Loan Repayment* obligations for all the investors in the Trust. Investment policy (For June 2009 offer) Macquarie Reflexion BRIC and Emerging Markets Trust provides investors with a United States Dollar ("USD") denominated exposure to the Macquarie - Globalis BRIC Advantage Fund (being the Underlying Investment for the Trust), which is capital protected in Australian dollars ("AUD") at maturity. This Fund seeks to provide exposure to emerging market economies with a particular focus on Brazil, Russia, India and China ("BRIC") and aims to outperform the MSCI Emerging Markets Index in USD over the long term. The Trust does not invest directly in the Underlying Investment but instead obtains an exposure to the Underlying Investment via an Investment Linked Swap Arrangement. The Trust has entered into the following agreements: an Investment Linked Swap Agreement ("Swap Agreement") a Cash Collateral Agreement ("Collateral Agreement"); and a Foreign Currency Exchange Agreement The Swap Agreement and the Collateral Agreement together forms the "Investment Linked Swap Arrangement". The Investment Linked Swap Arrangement is the contractual arrangement by which the Trust obtains exposure to the Underlying Investment. The Investment Linked Swap Arrangement comprises of two components:. Swap Agreement - provides the Trust with exposure to the Underlying Investment. This agreement is made between the Trust and Macquarie Bank Limited (the "Swap Counterparty"); and. Collateral Agreement - this, in conjunction with the Foreign Currency Exchange Agreement, forms the basis of capital protection at maturity. This agreement is made between the Trust and Macquarie Bank Limited (the "Collateral Counterparty"). Swap Agreement The Swap Agreement is a contract under which the Trust:. may receive a payment from the Swap Counterparty at maturity, the amount of which will depend upon the performance of the Underlying Investment during the term;. is required to pay to the Swap Counterparty an amount each month, equal to the amount of interest it receives from the Cash Collateral;. provides investors in the Trust with the potential to receive an annual distribution depending, among other things, on the performance of the Underlying Investment; and. may be required to pay an amount to the Swap Counterparty or receive an amount from the Swap Counterparty (depending on market conditions) if all or part of the Swap Agreement is terminated or unwound early. 18

20 3. Financial risk management (continued) Investment policy (For June 2009 offer) (continued) Collateral Agreement The Trust deposits the offer proceeds with the Collateral Counterparty in United States Dollar as collateral for its obligation under the Swap Agreement. The interest earned on the Cash Collateral is partly applied to make payments to the Swap Counterparty under the Swap Agreement and partly paid as fee to Responsible Entity. The Cash Collateral will be returned to the Trust at the maturity date, or partially if unitholders make redemptions. Foreign Currency Exchange Agreement The Trust has entered into Foreign Currency Exchange Agreement with Macquarie Bank Limited (the "FX Counterparty"). Under this agreement, the Trust will commit to sell the value of the USD denominated Cash Collateral for a fixed Australian Dollar amount on the maturity date. This fixed Australian Dollar amount should be equal to the sum of the Investment Loan Repayment* obligations for all the investors in the Trust. Risk management The Trust's activities expose it to a variety of financial risks: market risk (including market price risk, foreign exchange risk and interest rate risk), credit risk and liquidity risk arising from the financial instruments it holds. The risk management policies employed by the Trust to manage these risks are discussed below. (a) Market risk Market risk is the exposure to adverse changes in the value of the Trust's investment portfolios as a result of changes in market prices or volatility. The Trust is exposed to the following risks in each of the major markets in which it trades: OJ Market price risk The Trust is exposed to market price risk on its investment in Investment Linked Swaps. The value of the Trust's investment in the Investment Linked Swaps is linked to the Macquarie - Globalis BRIC Advantage Fund for original offers and based on a call option over MSCI Emerging Markets Index for variation offers. The Underlying Investments are impacted by the changes in prices of underlying listed equity securities. The maximum risk exposure to the Trust at the reporting date is determined by the fair value of the Investment Linked Swaps as disclosed within Note 10. This risk is managed by the Swap Counterparty through the application of Threshold Management* (applicable for original offers). The Threshold Management technique involves allocating part of the investment exposure to higher risk assets, like the Underlying Investment, and part to a lower risk asset like a cash deposit. Therefore, the Trust is not always exposed to 100% of the movements in the Underlying Investment although the maximum exposure of the Trust to the Underlying Investment could be 100%. The Trust does not directly hold the Underlying Investment and/or the cash deposit, but instead achieves exposure to these assets through the Investment Linked Swap Agreements. The table on page 20 summarises the impact of an increase/decrease of the Underlying Investments on the Trust's profi and loss at 30 June As separate Investment Linked Swap Agreement has been entered into for each class of units, and each Investment Linked Swap Agreement have different levels of exposures to the Underlying Investments, the table below discloses the impact for each Agreement. 19

21 3. Financial risk management (continued) (i) Market price risk (continued) For original offers, the analysis is based on assumptions that the Underlying Investment increased/decreased by 10% (2009: 10%) with all other variables including participation rates held constant and that fair value of the Investment Linked Swaps moved in a direct correlation with this increase/decrease. For the analysis, the % increase/decrease in the Underlying Investment is on the basis of simple average of absolute movements in the Investment levels over the period of the last three years. The impact arises from reasonably possible change in the value of the Underlying Investment. However, actual price movements may be greater or less than those presented below. 30 June June 2009 Impact on operating profit** Impact on operating profit** +10% -10% +10% -10% nvestment Linked Swap December 2006 original offer 329,470 (329,4 70) 898,386 (898,386) June 2007 original offer 302,734 (302,734) 1,218,706 (1,218,706) December 2007 original offer June 2008 original offer 370,255 (370,255) 1,360,053 (1,360,053) - - June 2009 oriqinal offer 421,376 (421,376) ~otal 1,423,835 (1,423,835) 3,477,145 (3,477,145) At the reporting date as a result of the application of Threshold Management* (applicable for original offers), a portion of the underlying exposure of the Investment Linked Swaps was allocated to cash deposits or assets with a similar market price risk profile. For the portion of the Investment Linked Swaps exposure allocated to assets such as cash deposits the Responsible Entity considers that sensitivity to market price risk is not significant at the reporting date. For variation offers, the analysis is based on assumptions that the Underlying Investment increased/decreased by 15% (2009: not applicable as variation offers are effective 1 July 2009) with all other variables held constant. The impact arises from reasonably possible change in the fair value of the Investment Linked Swap. The reasonably possible movements in the risk variables have been determined based on Management's best estimate, having regard to a number of factors, including historical levels of changes in underlying funds investment unit price. However, actual movements in the risk variables may be greater or less than anticipated due to a number of factors, including unusually large market shocks resulting from changes in the performance of the economies, markets and securities in which the underlying fund invests. As a result, historic variations in risk variables are not a definitive indicator of future variations in the risk variables. 30 June 2010 Impact on operating profit** +15% -15% nvestment Linked Swap December 2006 variation offer 784,172 (789,298) June 2007 variation offer 1,232,396 (1,330,451) December 2007 variation offer 832,637 (946,919) June 2008 variation offer 1,331,612 (1,414,048) ~otal 4,180,817 (4,480,716) ** Positive numbers indicate increase in operating profit and negative numbers indicate decrease in operating profit due to movement in Underlying Investments. 20

22 3. Financial risk management (continued) Oi) Foreign exchange risk Foreign exchange risk arises on financial instruments denominated in a currency other than United States Dollar, being the functional currency of the Trust. The Trust is exposed to foreign exchange risk primarily as a result of issuing units, which are classified as a financial liability under Australian Accounting Standards, in Australian Dollars. The Trust has entered into the Foreign Currency Exchange Agreements to hedge this exposure up to the amount of the investors' Investment Loan Repayment*. The Trust does not hedge net assets attributable to unitholders that are attributable to unrealised gains or losses on the Investment Linked Swaps. The table below summarises the Trust's net exposure to foreign exchange risk. The net exposure mainly represents the unrealised gain or loss on the Investment Linked Swaps that is within net assets attributable to unitholders (a liability) but is not hedged. 30 June June 2009 Net assets attributable to unitholders - liability (AUD) Foreign Currency Exchange Agreement - AUD equivalent of USD notional amount (sell USD/buy AUD) Net Foreign Currency Exposure (USD balance to be paid to unitholders in AUD) 131,324, ,959,805 (133,404,829) (160,098,279) (2,080,677) (19,138,474) The table below indicates the impact that a +/- 10% (2009: +/- 15%) change in foreign currency exchange rates would have on the Trust's profit and loss. As the functional currency of the Trust is the United States Dollar, the movement presented is based on a movement in the Australian Dollar (UAUD") relative to the United States Dollar. For foreign exchange risk analysis, % increase/decrease in foreign currency exchange rates is on the basis of simple average of absolute movements in foreign currency exchange rates over the period of last three years. 30 June June 2009 Impact on operatinq profit*** Impact on operatinq profit*** +10 % T -10 % +15 % I -15 % ljsd - AUD Exchange Rate (208,068) I 208,068 (2,870,771) I 2,870,771 *** Positive numbers indicate decrease in operating profit and negative numbers indicate increase in operating profit due to movement in foreign currency exchange rates. (ii) Interest rate risk Interest rate risk is the risk that the value of a financial instrument or its cash flows will fluctuate due to changes in market interest rates. All assets and liabilities are non-interest bearing with the exception of the Collateral deposit. Interest income and swap fee expense may fluctuate in amount due to changes in interest rates. The amount of interest income is partly offset by the Responsible entity fee expense and balance by the swap fee expense under the Investment Linked Swap Agreements; therefore change in interest rate will not have any impact on operating profit. 21

23 3. Financial risk management (continued) (iii) Interest rate risk (continued) As explained above in Market Price risk, some part of the Underlying Investments could be allocated to a lower risk asset like a cash deposit as a part of Threshold Management (applicable for original offers). This Cash deposit is interest bearing and is impacted by movements in interest rate. The table below summarises the impact of an increase/decrease of interest rates on the Trust's profit and loss at 30 June 2010 for original offers, As a separate Investment Linked Swap Agreement has been entered into for each class of Units, and each Investment Linked Swap Agreement has different levels of exposure to the Underlying Investments, the table below discloses the impact for each Agreement. The analysis is based on the assumption that interest rates changed by +/- 50 basis points (2009: +/- 50 basis points) from the year end rates with all variables including participation rates held constant. The impact mainly arises from changes in the value of Cash deposit placed under the application of Threshold Management* (applicable for original offers). 30 June June 2009 Imoact on operatinq profit**** Impact on operatinq profit**** Interest rate +50 basis points -50 basis points +50 basis points -50 basis points December 2006 original offer (81,979) 84,020 (283,287) 291,681 June 2007 original offer (179,028) 183,486 (876,839) 902,819 December 2007 original offer (182,010) 187,441 (1,228,351) 1,270,784 June 2008 original offer (118,539) 122,076 (560,197) 579,549 June 2009 oriqinal offer 136,510) 37, ""otal (598,066) 614,804 (2,948,674) 3,044,833 **** Positive numbers indicate decrease in operating profit and negative numbers indicate increase in operating profit due to movement in interest rates. (b) Credit risk Credit risk is the risk that a counterparty will fail to perform contractual obligations, either in whole or in part, under a contract. Potential areas of credit risk consist of the Cash and cash equivalents, Collateral deposit and Financial assets held at fair value through profit or loss. These areas of credit risk include exposures to the Swap Counterparty, the Collateral Counterparty and the FX Counterparty. The Trust manages its exposure to credit risk by dealing with well established financial institutions that the Responsible Entity has assessed to have a high quality credit standing. The credit standing of these counterparties is monitored on a regular basis. 22